Mint Explainer: Sebi’s one-hour trade settlement - A game changer for investors?

livemint.com:

Mint explains what the new announcement means for market investors. Currently, when an investor buys or sells shares from stock exchanges, the transaction is confirmed instantly, but the actual settlement takes time. So once the transaction is confirmed, the buyer doesn’t receive shares instantly, nor does the seller receive the proceeds instantly.

Until last year, it used to take two days from the day of transaction (T+2) for the trade to be settled, shares and proceeds transferred. But earlier this year, Sebi cut the timelines to T+1 and now the chairperson has confirmed that the market regulator is working on reducing the settlement time to one hour. The reduced timeline is expected to be finalised by Sebi during the current fiscal.

If implemented, India will be the first country in the world to have such short settlement time. The country is already one of the first major economies in the world to have shifted to T+1 settlement scheme. Shortening of settlement time will improve the efficiency of the markets.

Currently, the buyers must wait for a day to receive the shares. Some of the transactions like pledging the shares for margin or lending the shares through the Securities Lending and Borrowing (SLB) platform can be done only after getting possession of shares. Hence, buyers can avail these facilities quicker if the settlement cycle is shortened.